What Happens in a Partition Lawsuit?
If you have found yourself involved in a partition lawsuit you did not start, it is likely because you were refusing to sell your share of a piece of co-owned real property or offer a buyout price that the other co-owners found acceptable. Co-owners sue for partition of property to force the sale of property so the co-owners who no longer want the property can terminate their interests in it, and the proceeds from the sale of the property can be divided among co-owners fairly and equitably.
Perhaps the co-owners of the property who were seeking to sell were asking an unreasonable price for their shares of the property or were outright hostile, refusing to consider a buyout agreement at all. Perhaps the property at issue was passed down as a family legacy and disposing of it would be against the decedent’s final wishes; nevertheless, certain co-owners still wish to sell it. Perhaps it’s not a great time to sell and holding on to the property or renting it out would make more sense.
The aforementioned scenarios are ones that often lead to the filing of a partition lawsuit. Because of the high costs involved, a partition lawsuit is generally not brought before other avenues for resolving the dispute are tried first. Sometimes, however, informal resolutions will not work. When this happens, it may become necessary to sue for partition of property (preferably with help from a property dispute lawyer, since partition lawsuits can be tricky to navigate).
What Are Some Alternatives to Partition Lawsuits?
It can be overwhelming to learn that you have been named in the complaint for a partition lawsuit. You probably are wondering: How much will the partition lawsuit cost? Will I end up having to sell my share of the property despite my unwillingness to do so? Is the partition lawsuit worth defending? The good news is that even if a partition action has been filed, a partition action can be stopped.
In this section, we discuss the alternatives that are available for co-owners who are seeking to resolve a real estate ownership dispute outside of a partition lawsuit. If an agreement can be reached between the co-owners, the partition lawsuit that was filed will not need to continue, saving the parties involved a considerable amount of money and time.
Irrespective of whether co-owners of inherited property wish to file for a partition lawsuit or not, they should consider consulting with a probate attorney. After learning more about their real estate dispute, the attorney can advise them about whether a partition action is needed, of if alternatives can be tried.
If you lawyer recommends that suing for partition of property is the best course of action, be sure to check out our article on how to win a partition action.
Buyout Agreements
Buyout agreements generally involve one or more co-owners of a piece of real property paying the other co-owners of the property a fair and equitable amount for their shares of the property. A buyout agreement can be reached independently between the parties, through a mediation, or as part of an action for partition of real estate.
Perhaps you are inheriting a house with siblings. You want to keep the house in the family, but your siblings want to sell it. Unfortunately, you don’t have the funds to buy out their interests in the property. A potential option for you would be to offer to buy them out over time with interest added, or you could try taking out a loan on the property to obtain the cash needed to fund the buyout.
Regardless of the buyout agreement that is made between the parties, it is crucial to involve an experienced estate and trust lawyer when putting the agreement to paper. Without a binding and legally valid contractual document, it will be difficult to enforce the buyout agreement in court.
Effect of 2022 Partition Reforms on Buyout Agreements
Offering hope to certain categories of people who are seeking to defend a partition lawsuit are the reforms to California partition law, which were enacted in 2022. The new laws are applicable to “heirs’ property,” or any property that has indications of familial ownership and was passed down to one or more co-owners from a relative. These reforms do not apply to property for which an agreement exists among co-owners surrounding the partition of property, even if the property in question qualifies as heirs’ property.
To prevent non-partitioning co-owners from having to terminate their interests in a property that carries sentimental value for them merely because they cannot reach a buyout agreement with the co-owners who are seeking partition by sale, the new laws requires for the non-partitioning co-owners to be afforded the opportunity to buy out the partitioning co-owners’ shares of the property at a price that represents these co-owners’ proportional shares of the property. In other words, even if the partitioning co-owners are certain they can receive more for the property buy selling it on the open market, the non-partitioning co-owners must first be given a chance to buy out the opposing co-owners’ shares for the amount they are actually worth.
The reforms to partition law also strengthen the preference for partition by kind (i.e., the fair and equitable division of property). Because property is generally impossible to divide fairly and equitably, partition by kind is often not even an option; however, when it is possible (e.g., if the property in question is a multi-family home with three units that are equal in value and to be divided among three co-owners), partition by kind may be the preferred choice of the court, even if partition by sale was what was being requested by the partitioning co-owners. Partition by kind allows for the co-owners seeking to terminate their interests in a property the ability to do so without compelling the other co-owners to sell.
If the court is deciding between ordering a partition by kind or a partition by sale in a partition suit, it will now consider such factors as:
- Whether the property has sentimental, cultural or historic value
- Whether any of the co-owners would be rendered homeless if the court were to order for the property to be sold
- Whether the value of the property would be negatively impacted by dividing ownership
If the court ultimately decides to order a partition by sale, the 2022 reforms require it to give preference to open market sales, as opposed to sale by auction. This change was enacted as a result of evidence pointing to open market sales yielding higher sales prices than auctions.
If you are unsure whether the 2022 reforms apply to your case, be sure to consult with a skilled probate attorney, who will be able to provide you with answers.
Alternatives to Buyouts
Private arrangements can be made between co-owners that are not necessarily buyout agreements. For instance, if a decedent’s two children were left equal shares of two real properties (e.g., a decedent’s primary residence and their vacation home), an agreement could be made between the children in which one child would take ownership of one property and the other child would take ownership of the other, as long as both properties are worth roughly the same amount. Another possibility is that there are other valuable assets in the estate or trust (e.g., bank or investment accounts or tangible personal property) that roughly equal the value of the subject real property. One beneficiary may opt to take the real property, while the other may opt for the remaining assets.
As demonstrated, there are countless ways to resolve real estate disputes without bringing a partition lawsuit; legal counsel can help co-owners with finding the right alternatives for their given situations, and later, with drafting a legally binding contractual agreement for whatever deal is made.
Mediation
To avoid running up the high legal fees and costs associated with a partition lawsuit, co-owners involved in real estate disputes can organize a mediation to try to resolve the dispute. A mediation is a non-binding private process led by a neutral third party during which the opposing parties will have an opportunity to present their cases (with help from a lawyer if they choose) and reach a resolution without involving the court.
During the mediation, the mediator can help the parties negotiate a settlement agreement – which can entail anything from one party buying out the other party’s interest in the property to the parties agreeing on how to use the property (e.g., they may agree to rent it out and divide the rental income). If an agreement is successfully negotiated, a probate lawyer can help with drawing up a legally binding contract for both parties to sign.
Mediations can be contentious and emotional, but most end in a settlement, making it an effective tool for the resolution of disputes. It should be noted that the mediator is simply a facilitator of negotiations and does not have the authority of a judge, so if the parties cannot agree on a resolution during the mediation, the only remaining option may be to bring an action for partition of real estate. It is important to keep in mind that even after a partition action has been filed, the parties involved can still reach a settlement agreement outside of court through a mediation.
Potential Outcomes of a Partition Lawsuit
If a property is able to be physically divided fairly and equitably, the judge will generally order a partition by kind, which will entitle each co-owner to an undivided interest in the property that they can keep or dispose of as they please. As a result of the 2022 partition reforms, the preference for partition by kind over partition by sale has been strengthened when the property in question is regarded as heirs’ property.
Partition by kind is rarely ordered, since physically dividing property fairly and equitably is generally not possible.
If the property cannot be physically divided – which is more often the case – the judge may order a partition by sale in which the property will either be purchased by a third party, put up for public auction, or listed for public sale. Once the sale is complete, the proceeds from the sale will be divided among co-owners according to their percentage shares.
If one or more co-owners wants to buy out the other co-owners’ interests, the parties can consent to a partition by appraisal. In this kind of partition, the co-owners seeking to keep the property can purchase the other co-owners’ interests after the property has been professionally appraised. This last option will require the approval of all the parties involved. It can drastically reduce costs for the buyer by eliminating escrow fees and brokerage costs.
Can a Partition Action Be Stopped?
If you are a co-owner seeking to preserve your interest in a property that is the subject of a partition suit, you are probably wondering about how to stop a partition action from moving forward. Unfortunately, regardless of whether the co-owners seeking to sell are in the minority or majority, once a partition lawsuit is filed, it cannot generally be stopped. Co-owners of real property are at any time entitled to dissolve and sell their interest in a property if they so choose (so long as they previously did not waive that right).
That being said, if the property that’s subject to a partition lawsuit qualifies as an heirs’ property, there may be special allowances made for the non-partitioning co-owners, which were covered in a previous section about the 2022 reforms to California partition law.
This may seem unfair, especially if, say, only one co-owner wants to sell and the rest wish to hold on to the property; however, the court cannot force a person to maintain ownership of a property they don’t wish to keep. If it can be worked out, a mutually beneficial situation could consist of the co-owners wishing to keep the property buying out the interests of the co-owners wishing to sell. Still, sometimes it’s just not possible for the parties to reach a fair agreement outside of court. When this happens, a partition lawsuit may be required.
The good news is that even if a real estate ownership dispute does end in a partition action, the co-owners seeking to keep the property could still potentially make a deal to buy out the co-owners seeking to terminate their interests as part of the partition lawsuit. Another possibility is that they could reach a settlement agreement with the other co-owners outside of court – which can be done through mediation even if a partition lawsuit has already been filed.
Potential Defenses for Partition Lawsuits
As previously mentioned, defending a partition lawsuit is anything but easy. Before you devote substantial money and time to this process, it is recommended you consult with an inheritance dispute lawyer to determine whether your reasons for defending the partition lawsuit are valid. If they are not and you proceed to defend the action anyway, the judge could order you to cover the opposing party’s attorney’s fees and costs.
There are three common defenses in a partition lawsuit. They are:
- The parties who filed the partition lawsuit did not have standing (i.e., they are not an owner of the property).
- The parties had previously waived their right of partition through a legally binding contract.
- The property qualifies as an heirs’ property (i.e., it has indications of familial ownership and was passed down to one or more co-owners from a relative).
While partition lawsuits can be contentious and emotional, especially if the property at issue previously belonged to a loved one and holds sentimental value, it is in your best interest to maintain your composure and be as cooperative as possible with the opposing party, the judge, the referee (i.e., the neutral party hired by the court to divide or dispose of the property) and anyone else involved.
Regardless of whether you are seeking a partition of property or trying to defend a partition action, it is crucial to consult with an experienced probate lawyer. Having a lawyer represent your interests can ultimately help ensure the outcome that is reached – whether through a partition lawsuit, mediation or private arrangement – is fair, equitable, and in line with your desires.
Are You Involved in a Partition Lawsuit? Call Us for a Free Consultation!
If you are wondering how to stop a partition action, you have come to the right place. While stopping a partition action can be difficult, our lawyers are skilled in finding creative solutions to real estate ownership disputes that can help prevent the forced sale of property. Request a free consultation with one of our skilled probate lawyers today!
